The Securities and Exchange Commission (SEC) settled charges with 21 investment advisors and six broker/dealers, claiming the firms had failed to “timely file and deliver” their Form Customer Relationship Summaries (CRS) to investors.
The 27 actions were announced on Gurbir S. Grewal’s first day in the role of director for the SEC’s Enforcement Division; the former attorney general for New Jersey reiterated that registration for advisors and b/ds came with “mandated filing and disclosure obligations” in a statement about the actions.
“Today’s cases reinforce the importance of meeting those obligations and providing retail investors with information that is intended to help them understand their relationships with their securities industry professionals,” he said.
Form CRS was adopted in June 2019 and implemented one year ago in tandem with the SEC’s Regulation Best Interest rule. The form was intended to provide brokerage and advisory clients with a streamlined summary of the relationship between a customer and advisor with accessible “plain English” language and disclosures, detailing a firm’s fees, products, commitments and clients.
Firms were required to file their Form CRS with the SEC, and also deliver them to potential and new investors by June 30, 2020. Delivery to existing retail clients was to follow by one month later. If firms had a website, they were also required to post the form on it, according to the SEC.
But according to the commission, the charged firms missed the deadlines; none of the 27 firms in question had filed or delivered their form, or posted it on their website, until two separate reminders by regulators. The 21 investment advisors span the country, but tended to have regulatory assets under management under $1 billion. Exceptions included Paratus Financial, a Dallas-based investment advisory firm with $1.8 billion in AUM, according to the order, as well as Minot DeBlois Advisors, a Boston-based IA with nearly $1.7 billion in managed assets, according to the commission (the full list of charged advisory and brokerage firms can be found here).
“Form CRS is intended to provide retail investors with a brief summary about the services a firm offers, its fees, conflicts of interest, and other information that can help investors make more informed choices,” Adam S. Aderton, the co-chief for the Enforcement Division’s Asset Management Unit, said. “By failing to file, deliver, and post this form, these firms deprived their clients and customers of the benefits of that information.”
The SEC has acknowledged other Form CRS concerns since last year’s implementation; according to an SEC/FINRA roundtable from last October headed by former SEC Chair Jay Clayton, regulators had found that some firms failed to properly disclose disciplinary issues on their forms, with one FINRA executive calling it “the biggest issue” they’d seen since implementation commenced (those disciplinary disclosure lapses had previously been reported by The Wall Street Journal).
The penalties for the firms ranged from as little as $10,000 in some cases to $97,500 in several instances. Though the firms did not admit or deny the charges, they agreed to a censure and cease and desist.